Liberty University ECON 213 quiz 5 complete solutions correct answers A+ work

Liberty University ECON 213 quiz 5 complete solutions correct answers A+ work

There are more than 7 different versions

Question 1

The luxury tax of 1990 produced far less tax revenue than projected because:

Question 2

Goods that are necessities are very likely to have:

Question 3

Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

Question 4

Producers will lose no producer surplus due to a tax if:

Question 5

Consumer surplus plus producer surplus equals:

Question 6

All taxes create some deadweight loss, unless:

Question 7

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Question 8

Consumers will lose no consumer surplus due to a tax if:

Question 9

The maximum amount of tax revenue is generated when the good being taxed has a:

Question 10

If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by:

Question 11

A tax creates no deadweight loss only when either supply or demand is:

Question 12

When the price of a good decreases and all else is held constant:

Question 13

In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 14

When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 15

Social welfare (i.e., the sum of producer and consumer surplus) is maximized when:

Question 16

MJM Products, Inc., designs and sells flannel jackets. The company is willing to sell a men’s flannel jacket for as little as $45. Its main competitor is RL Outriggers, which is willing to sell the same men’s flannel jacket for as little as $40. The current market price of that type of jacket is $57. What is the total producer surplus for the two firms?

Question 17

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

Which areas represent the amount of producer surplus lost due to the tax?

Question 18

A tax on milk would likely cause a decrease in the:

Question 19

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

Question 20

Compared to producers, consumers will lose the lesser amount of surplus from a tax if:

Question 1 A tax on milk would likely cause a decrease in the price of:

Question 2 Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

Question 3 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What areas represent the total lost consumer and producer surplus (i.e., social welfare) as a result of the tax?

Question 4 Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

Question 5 Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. How much is total consumer surplus in this market?

Question 6 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent producer surplus before the tax is imposed?

Question 7 Producers will lose no producer surplus due to a tax if:

Question 8 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Question 9 Consumers will lose no consumer surplus due to a tax if:

Question 10 When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 11 In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 12 Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in this market?

Question 13 Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

Question 14 If the government wanted to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a:

Question 15 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the revenue collected from this tax?

Question 16 Compared to producers, consumers will lose the greater amount of surplus from a tax if:

Question 17 After a tax is imposed, the price paid by consumers _________ and the price received by producers _________.

Question 18 The per­unit dollar amount of a tax times the quantity sold after the tax is imposed equals:

Question 19 When the price of a good decreases and all else is held constant:

Question 20 Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

Question 1 If a tax is imposed on a good with a perfectly elastic demand, the burden of the tax will be borne:

Question 2 In a market where supply and demand are equally elastic, producers and consumers will share equally the burden of a tax because:

Question 3 The difference between the willingness to sell a good and the price a producer receives is also known as:

Question 4 The difference between the price consumers pay and the price sellers receive after a tax is imposed is equal to the:

Question 5 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent producer surplus before the tax is imposed?

Question 6 Taxes will almost always cause consumer prices to increase. How much they increase depends on:

Question 7 As a tax rate grows larger and larger, eventually:

Question 8 Holding all else constant, when the price of a good increases:

Question 9 At very low tax rates:

Question 10 Excise taxes are taxes that are:

Question 11 Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

Question 12 The difference between the willingness to pay for a good and the amount that is paid to get it is also known as:

Question 13 When a tax is imposed, consumer surplus and producer surplus are reallocated to:

Question 14 When looking at a graph, the area above the supply curve and below market price is defined as:

Question 15 The incidence of a tax reflects:

Question 16 A tax on apples would cause the price paid by consumers to __________ and the price received by producers to __________.

Question 17 The cost to society created by distortions in the market as a result of a tax is also known as:

Question 18 The elasticities of supply and demand are important in determining the distribution of tax burden because they:

Question 19 Producers will lose no producer surplus due to a tax if supply in their market is perfectly elastic because:

Question 20 Which of the following statements is concerned with equity rather than efficiency?

Version 2

Question 1 Consumers will lose no consumer surplus due to a tax if:

Question 2 A tax on apples would cause consumers to suffer because:

Question 3 Holding all else constant, when the price of a good increases:

Question 4 Producer surplus is depicted by the area:

Question 5 The deadweight loss from a tax is likely to be greater with a good that has:

Question 6 In a market where supply and demand are both somewhat elastic, but supply is more elastic than demand, producers will bear less of the burden of a tax because:

Question 7 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the amount of the tax, as measured along the y axis?

Question 8 Compared to consumers, producers will lose the lesser amount of surplus from a tax if:

Question 9 When a tax is imposed on some good, what usually happens to consumer and producer surplus?

Question 10 A tax that is applied to one specific good or service is a(n):

Question 11 Consumers will lose no consumer surplus due to a tax if demand in their market is perfectly elastic because:

Question 12 When a tax is imposed on some good, what happens to the amount of the good bought and sold?

Question 13 Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the revenue collected from this tax?

Question 14 Consumer surplus plus producer surplus equals:

Question 15 Social welfare is measured as the sum of:

Question 16 In most cases, taxes reduce economic efficiency because:

Question 17 Which of the following statements is concerned with equity rather than efficiency?

Question 18 If a tax is imposed on a good where both supply and demand are somewhat elastic, but supply is more elastic than demand, the burden of the tax will be borne:

Question 19 The cost to society created by distortions in the market as a result of a tax is also known as:

Question 20 Of the following items, which is (are) most important in determining the distribution of tax burden?

Use the following information to answer the questions that follow.
The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.
Which areas represent the amount of consumer surplus lost due to the tax

If a tax is imposed on a good with a perfectly elastic supply, the burden of the tax will be borne

Compared to producers, consumers will lose the lesser amount of surplus from a tax if

Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill

Deadweight loss is defined as

For any type of tax the government imposes

Holding all else constant, when the price of a good decreases

When a good with equally elastic demand and supply is taxed, the incidence of the tax is borne:

Producer surplus is depicted by the area:

Consumer surplus is the difference between

When supply is perfectly inelastic, the supply curve is

Taxing goods with very elastic supply generates more deadweight loss than taxing goods with very inelastic supply because

Producers will lose no producer surplus due to a tax if:

The difference between the willingness to pay for a good and the amount that is paid to get it is also known as

The incidence of a tax is determined by

A(n) __________ in the elasticity of supply or demand in a market for a good that is taxed would tend to __________ deadweight loss from that tax

The deadweight loss from a tax is equal to one half of:

When supply is perfectly elastic, the supply curve is:

Of the following items, which is (are) most important in determining the distribution of tax burden?

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is:

Consumer surplus is the difference between:

Holding all else constant, when the price of a good increases

Producer surplus is defined as the

All else held constant, a decrease in the price of a good would necessarily

When the price of a good increases and all else is held constant

When looking at a supply and demand graph, you would find producer surplus

A market has reached an efficient outcome when

Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent consumer surplus before the tax is imposed?

Use the following information to answer the questions that follow. The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. Which areas represent the amount of producer surplus lost due to the tax?

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market before the tax is imposed?

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market after the tax is imposed?

Use the following information to answer the questions that follow.

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. What is the amount of the tax, as measured along the y axis?

A tax on apples would cause apple growers to suffer because

In most cases, taxes reduce economic efficiency because

It is said that taxes drive a wedge between prices. This statement is true because taxes cause

A tax on apples would cause the price paid by consumers to __________ and the price received by producers to __________.

A tax on producers would cause the __________ curve(s) to shift to the __________.

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause a(n):

The elasticities of supply and demand are important in determining the distribution of tax burden because they:

All taxes create some deadweight loss, unless

1. The costs or benefits of a market activity that affect a third party are called:

         a.  externalities.

         b.  public goods.

         c.  club goods.

         d.  internal costs.

         e.  common-resource goods.

2. The personal decisions of consumers and firms are based on:

         a.  external costs.

         b.  social cost.

         c.  internal costs.

         d.  third-party costs.

         e.  public-good costs.

3. Refer to the accompanying table, where Q represents the quantity produced, internal cost and social cost are given for various quantities, and P represents the price consumers are willing to pay for various quantities.

Q

Internal Cost

Social Cost

P

100

$40

$60

$80

200

$50

$70

$70

300

$60

$80

$60

400

$70

$90

$50

500

$80

$100

$40

600

$90

$110

$30

         The external cost is equal to _________ per unit.

         a.  $60

         b.  $70

         c.  $20

         d.  $50

         e.  $30

4. Consider a market with a negative externality. The market will tend to ___________ the good because the market participants tend to ignore the __________ of their decision.

         a.  overproduce; external benefit

         b.  under-produce; external benefit

         c.  overproduce; external cost

         d.  under-produce; external cost

         e.  overproduce; internal benefit

Refer to the accompanying figure to answer the next three questions.

5. At the market equilibrium, price is equal to _________ units of the good are produced.

         a.  $18 and 70

         b.  $14 and 70

         c.  $12 and 50

         d.  $14 and 50

         e.  $18 and 50

    6.  The figure best illustrates what type of market?

         a.  The good produced creates a positive externality.

         b.  The good produced creates a negative externality.

         c.  The good produced is a club good.

         d.  The good produced is a public good.

         e.  Firms in this industry have been given a subsidy to encourage more production.

    7.  To achieve the social optimum, the government could set a tax equal to __________ per unit sold.

         a.  $6

         b.  $4

         c.  $2

         d.  $3

         e.  $5

8. Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?

         a.  $15

         b.  $20

         c.  $5

         d.  $25

         e.  $35

    9.  Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell a cupcake for as little as $1.75. What is the total producer surplus for the two firms?

         a.  $0.75

         b.  $1.60

         c.  $0.85

         d.  $2.50

         e.  $3.40

10. Explain what happens to the amount of consumer surplus and producer surplus when the supply of scarves suddenly declines (shifts left).

         a.  Producer surplus declines and consumer surplus is unchanged.

         b.  Consumer surplus declines and producer surplus is unchanged.

         c.  Consumer surplus declines and producer surplus declines.

         d.  Consumer surplus is unchanged and producer surplus is unchanged.

         e.  Producer surplus increases and consumer surplus increases.

  11.  Social welfare is measured as the sum of:

         a.  tax revenue and deadweight loss.

         b.  deadweight loss and consumer surplus.

         c.  producer surplus and tax revenue.

         d.  consumer surplus and tax revenue.

         e.  consumer surplus and producer surplus.

12. Which of the following statements is concerned with efficiency rather than equity?

         a.  It is not fair to tax the income earned by the wealthy at higher rates than the poor.

         b.  Excise taxes on tobacco products affect low-income families the most and should be reduced.

         c.  Our income tax system should be more progressive than it is now.

         d.  Taxes cause distortions in markets and reduce social welfare.

         e.  The best type of income tax is a flat tax because it treats everyone the same.

13. Which of the following is an accurate statement about the consequence of nonbinding price ceilings?

         a.  They prevent the seller from receiving the equilibrium price.

         b.  They require the seller to advertise the product at the equilibrium price.

         c.  They create a surplus in the legal market.

         d.  They do not change the quantity of goods bought or sold in the legal market.

         e.  They increase the quantity demanded of the good in question.

Refer to the accompanying figure to answer the next two questions.

  14.  The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity demanded change?

         a.  It would increase by 12,000 units.

         b.  It would decrease by 30,500 units.

         c.  It would decrease by 12,000 units.

         d.  It would increase by 30,500 units.

         e.  It would increase by 30,000 units.

15. The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?

         a.  It would increase by 32,000 units.

         b.  It would decrease by 18,000 units.

         c.  It would decrease by 30,500 units.

         d.  It would decrease by 30,000 units.

         e.  It would decrease by 32,000 units.

16.   Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a nonbinding price ceiling on most products?

         a.  Legal market prices will rise in the community with a binding price ceiling.

         b.  Legal market prices will fall in the community with a binding price ceiling.

         c.  The price and the quantity sold in the community without a nonbinding price ceiling will be the same as the price and quantity in the community with a nonbinding price ceiling.

         d.  There will be more shortages in the community with a binding price ceiling.

         e.  The black market in the community with a binding price ceiling will not be strong because consumers will simply purchase the product in the community that has no price ceiling.

17.   If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the price over time?

         a.  The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic.

         b.  The black market price will fall over time as both the supply and demand curves become more inelastic.

         c.  The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic.

         d.  The black market price will fall over time as both the supply and demand curves become more elastic.

         e.  The black market price will not change over time.

18. At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob’s price elasticity of demand for workers is:

         a.  −0.83

         b.  −1.20

         c.  −0.33

         d.  −0.40

         e.  −0.10

19. Jane says that she will always spend $20 a week on lattes. Jane’s demand for lattes is price:

         a.  inelastic.

         b.  elastic.

         c.  perfectly inelastic.

         d.  perfectly elastic.

         e.  unitary elastic.

20. When the price of softballs is high, a ___________ in price will raise total revenue. When the price is low, the seller should ___________ the price to increase total revenue.

         a.  decrease; raise

         b.  rise; raise

         c.  decrease; decrease

         d.  rise; decrease

         e.  decrease; not change

21. Which one of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

         a.  tea and coffee

         b.  soda and water

         c.  spaghetti and ravioli

         d.  tennis shoes and flip flops

         e.  coffee and cream

Consumer surplus is the difference between:  

All else being held constant, an increase in the price of a good would necessarily:  

The difference between the willingness to sell a good and the price a producer receives is also known as:  

When the price of a good decreases and all else is held constant:  

Producer surplus is depicted by the area:

When a tax is imposed on some good, the lost consumer surplus and producer surplus both typically end up as:

Producers will lose no producer surplus due to a tax if: 

The luxury tax of 1990 produced far less tax revenue than projected because:  

Positive externalities exist because: 

The personal decisions of consumers and firms are based on:  

Externalities are minimized if:  

For a market to work efficiently:  

The air is a:  

If government regulation forces firms in an industry to internalize the externality, then the:  

An external cost is best defined as the cost of an activity paid for by:  

Which of the following characteristics best defines a club good?  

The social optimum occurs where price is __________ and quantity is __________.

Which of the following is true?

1.     social costs = internal costs – external costs

2.     social costs = internal costs + external costs

3.     internal costs = social costs + external costs

4.     external costs = social costs + internal costs

5.     internal costs – social costs = external costs

Which of the following is true of a positive externality?

1.     Some costs are borne by a third party.

2.     The government can use taxes to move the market to the social optimum.

3.     There are no internal benefits.

4.     Some benefits accrue to a third party.

5.     Its existence always requires corrective measures by the government

To achieve the social optimum, the government could set a tax equal to __________ per unit sold. 

Which of the following is the best example of a common-resource good?

1.     a fireworks display

2.     a lighthouse

3.     cable television

4.     fish in a lake

5.     the production of gasoline

Which of the curves depicts economies of scale? hw7 Q1

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

The accompanying graph represents the __________ for a firm

Marginal product is the change in:  

The change in total cost given a change in output is also known as:

An explicit cost for a business that manufactures bicycles would be the:  

Lauren owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are:

Which of the following is the best example of a variable cost in the short run?  

Another term for factors of production is:  

Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve’s average variable cost was __________ per bike.

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 6 employees; with 6 employees, her bakery can produce 9 wedding cakes per day. If she hired a seventh employee, she’d be able to produce 12 wedding cakes per day. Therefore, the marginal product of the seventh employee is __________ wedding cakes.

In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

A firm’s economic profit is always less than its accounting profit because:

1. Opportunity cost is the ______________ alternative forfeited when a choice is made.

a.         least-valued

b.        highest-valued

c.         most recently considered

d.        most convenient

e.         first

2. You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

 A) resources are scarce.

 B) the real cost of something is what you must give up to get it.

 C) “How much” is a decision at the margin.

 D) there are gains from trade.

3. Positive economics:

 A) describes opinions and perspectives on how the world should work.

 B) is based on opinion polls.

 C) describes how the world does work

 D) is the same as normative economics.

4. Economists use models to explain real-life situations because:

 A) such models tend to be exactly what is occurring in each situation.

 B) assumptions found in such models tend to make the problem more difficult.

 C) simplifications and assumptions often yield answers that can help to explain the more difficult real-life situations

 D) they do not; real-life situations are not relevant to the building of models.

5. Bob can hire someone to paint his house for $2,000, or he can do it himself at no out-of-pocket cost.  It will take him 5 days.  Bob earns $500 a day when he works outside the home.  Which option has the greater economic cost?

a.       hiring a painter

b.       painting the house himself

c.        they are the same cost

d.       not enough information to decide—one needs to know the marginal cost

6. When one producer has a comparative advantage in production,

a.         she can produce more output than someone else using the same quantity of resources.

b.        she can produce a good at a lower opportunity cost than someone else.

c.         she will not benefit from trade with other producers.

d.        she is unable to reach her production possibilities frontier (PPF).

e.         she will only trade with others who have the same comparative advantage.

7. The slope of a production possibilities frontier

a.  has no economic relevance or meaning.

b.  is always constant.

c.  is always varying.  

d.  measures the opportunity cost of producing one more unit of a good

8. Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to:

 A) shift inward to the left.

 B) shift outward to the right

 C) remain unchanged.

 D) become vertical.

9. Which point(s) in the PPF above are unattainable?

a)       Point A because it is outside the production possibilities frontier

b)       All the points because the production of each has an opportunity cost.

c)       None of the points because they all are feasible.

d)       Points B, C, and D because they are on the production possibilities frontier.

e)       Point E because it is inside the production possibilities frontier.

10. Michael and Angelo are both artists who can create sculptures or paint paintings each day. The following table describes their maximum outputs per day. Does either person have an absolute advantage?

Sculptures

Paintings

Michael

10

5

Angelo

6

2

a.       Yes, Michael has an absolute advantage in both sculptures and paintings

b.       Yes, Angelo has an absolute advantage in both sculptures and paintings.

c.        Yes, Michael has an absolute advantage in paintings, and Angelo has an absolute advantage in sculptures.

d.       Yes, Michael has an absolute advantage in sculptures, and Angelo has an absolute advantage in paintings.

e.        No, neither has an absolute advantage.

11. Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. What is Angelo’s opportunity cost of a sculpture?

Sculptures

Paintings

Michael

10

5

Angelo

6

2

1. 1/2 painting
2. 1/3 painting
3. 3 paintings
4. 1/3 sculpture
5. 6/10 sculpture

12. The accompanying figure depicts the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. If Jim and Pam were to specialize and trade, at what exchange rate would they find some quantity of trade to be mutually beneficial?

a.       3 pizzas for 1 stromboli

b.       1 pizza for 1 stromboli

c.        10 pizzas for 2 stromboli

d.       1 pizza for 1/2 stromboli

e.        1 pizza for 1/4 of a stromboli

Figure: Production Possibility Frontier Curve for Tealand

13. (Figure: Production Possibility Frontier for Tealand) In the figure, Tealand is&